Amass Your Fortune With These Top Stocks

You don't need the investing acumen of Warren Buffett or the riches of a trust fund baby to achieve financial success.

Since the stock market is your best hope for realizing your dreams, start investing today, by putting away small sums of money every month. Then seek out undervalued small-cap stocks for your greatest returns. I like these stocks because they offer opportunities for growth, while still being mostly overlooked by the big investors.

To find these future giants, we'll screen for stocks with market values less than $3 billion, an earnings surprise of 15% or more in the previous quarter, and forecasts for long-term earnings growth potential of at least 15%. We'll filter our findings through the collective investing wisdom of the 170,000 members in our Motley Fool CAPS community. If the best and brightest CAPS players think these stocks hold potential, we ought to take notice, too.

Here are some of the stocks this simple screen found:

Company

Market Cap

EPS Surprise

Avg. Analyst 5-Year EPS Est.

CAPS Rating
(out of 5)

8x8 (Nasdaq: EGHT  )

$133 million

$0.02 vs. $0.01

28%

*****

Ceragon Networks (Nasdaq: CRNT  )

$343 million

$0.13 vs. $0.11

17%

*****

Orexigen Therapeutics (Nasdaq: OREX  )

$270 million

($0.25) vs. ($0.31)

15%

**

Source: Yahoo.com and Motley Fool CAPS. *Adjusted earnings.

Of course, this is not a list of stocks to buy -- just a starting point for more research. We need to look more closely at these companies to see whether analysts' faith in them is well-founded. Still, since the CAPS community's helping us out, their favorite selections might be a good place to begin.

An alternative opportunity
Is 8x8 Wall Street's best kept VoIP secret? I've already posited that although it often gets ignored as everyone trips over themselves to fawn over Vonage (NYSE: VG  ) or Skype, which is planning a much-anticipated IPO, 8x8 quietly goes about its business of making money.

Vonage hasn't been profitable since, well, just about forever, and Skype lost almost $100 million last year. But 8x8 earned $4 million in the last fiscal year which ended in March, with a subscriber base of over 20,000 businesses. The IP-based voice services market was valued at $41 billion in 2009, growing at a 34% compounded annual rate from 2006 to 2009. That's a big market opportunity for this hidden little upstart.

You can add the IP communications service provider to your My Watchlist page and have all the Foolish news and analysis about this stock aggregated in one place.

I'll drink to that
Another communications specialist, Ceragon Networks, which provides microwave backhaul services, has seen a shift in business by Clearwire away from DragonWave (Nasdaq: DRWI  ) to its own systems. Analysts have noted the change too, upgrading the stock based on the prospects of it growing 30% to 35% this year.

Yet don't get too excited. While there are a lot of international opportunities, the stock trades at a hefty premium to its peers. Ceragon goes for more than 40 times last year's earnings while Comtech Telecommuncations goes for less than half that and DragonWave for a miniscule six times earnings.

CAPS members remain confident though, with 98% of the more than 1,500 community members rating it to post additional market-beating performances. Share your views on the Ceragon Networks CAPS page on how the telecom leader can still stay relevant.

Man the ramparts
Obesity drug stocks melted away shareholder value faster than their pills could have you shedding the pounds after a series of refusals of their treatments by the FDA caused investor panic. Arena Pharmaceuticals (Nasdaq: ARNA  ) is down more than 75% from recent highs, VIVUS (Nasdaq: VVUS  ) lost half its value, and Orexigen Therapeutics...is actually up by 30% over the past quarter. With a decision due on Contrave in December, though, that's a bullet that still needs to be dodged.

Maybe not. While it might not have the same safety profile concerns that led the FDA to body-slam Qnexa, Contrave doesn't have the same weight-loss properties either. But CAPS member Health careGuy thinks we'll see the stock continue to run up toward decision day, and All-Star zzlangerhans says there's no way it will be approved:

Orexigen is up today in a completely counterintuitive trend. I closed my last red thumb as a hedge against a potential positive FDA Advisory Panel vote for Arena's lorcaserin. Now that such an outcome appears less likely, Orexigen should be going down, not up. Only a madman could think that Orexigen would get past the FDA after negatives on Vivus and Arena.

Foolish final thoughts
Stock investing is not brain surgery. Finding good, undervalued companies is not as difficult as the professionals want you to think. You just have to commit to starting now, and do so regularly. Now's the time to begin!

Ceragon Networks is a Motley Fool Hidden Gems pick. Try any of our Foolish newsletter services free for 30 days.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Fool contributor Rich Duprey currently does not own any stocks as you can see here. The Motley Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 29, 2010, at 5:13 PM, dgroves0 wrote:

    First let me say I am glad to see EGHT doing well - this is not an either/or situation. A rising sea lifts all boats.

    Although EGHT is focusing on Business customers, it still services homes. Vonage has a focus on both, but a bigger home business. Vonage has added Cell phone APPS and Social Networking, I'm not aware of EGHT doing this.

    The businesses are very simular, and when making comparisons they are a natural to each other.

    I can see why you compare VG to EGHT

    First you say."Vonage hasn't been profitable since, well, just about forever"

    BUT if you investigated, you would know that is about to change!

    Vonage has had GAAP positive earnings in two out of the last 4 quarters.

    The only reason it hasn't been 4 out of 4 is NON CASH CHARGES:

    http://www.acronet.net/~dgroves0/netincomeq210.JPG

    When they report 3rd Qtr '10 in one month, Nov. 3rd, I expect to see $9 million in GAAP Earnings($3 million non cash charge). This will mean $27 million ttm GAAP EARNINGS as 3rd QTR '09 drops off.

    That's $.13 ttm GAAP earnings per share. $.19 ttm Adjusted earnings per share (taking out Non cash charges)

    So we can look at their comparison values and see whether VG or EGHT is the better value.

    *** First let me Prenote that Vonage PE is reported, for AFTER the 3rd QTR report.

    ALL of the other comparison values are as of this week. Easily found or figured.

    Vonage (VG)

    Enterprise Value/Revenue (ttm) 0.67

    Enterprise Value/EBITDA (ttm) 4.16

    Price/Sales (ttm): 0.57

    Price to Free Cash Flow (mrq) : 5.65

    Trailing P/E (after 3rd QTR CC): 19 ****

    8x8 Inc. (EGHT)

    Enterprise Value/Revenue (ttm) 1.77

    Enterprise Value/EBITDA (ttm) 21.35

    Price/Sales (ttm): 2.05

    Price to Free Cash Flow (mrq) :128.0

    http://biz.yahoo.com/p/841mktd.html

    Trailing P/E (ttm, intraday): 29

    SO WHAT DOES THIS MEAN?

    If Vonage was to be Valuated the same as it's closest competitor, EGHT:

    PPS would have to go up the stated value in each case:

    Enterprise Value/Revenue (ttm)....... 2.3X

    Enterprise Value/EBITDA (ttm)........ 4.6X

    Price/Sales (ttm):..................... 3.3X

    Price to Free Cash Flow (mrq)......... 21X

    Trailing P/E (ttm, intraday)............. 1.5X

    Now, I am going to cut the FCF number in half, because there were extraneous cash additions last quarter and the expected number this 3rd Q is $41Million. Then average the numbers.

    The average is 4.4X

    If Vonage were to be valued the same as EGHT is right now, Vonage PPS would be $10!

    Is EGHT overvalued? NO - It fits in nicely with the rest of the Telcos.

    Vonage is UNDERVALUED.

    I think the better deal

    JMO Dave

  • Report this Comment On September 29, 2010, at 11:22 PM, outnleftdave wrote:

    The FOOL has ALWAYS bashed Vonage. Even when the article is about anopther company, they manage to put in a "dig" to badmouth VG. As of late they have been PUMPING 8. Based on the Fools past calls, that can't be a good sign for 8...like a pump & dump scam.The funny thing is whenever they do a comparison, VG is, like today, did better than whatever company they compare it to. They aren't called "fool" for nothing.

    dd

  • Report this Comment On September 30, 2010, at 9:25 AM, cool3bearsStock wrote:

    Guess what I see $VVus going down 6 days in a rows look like it going to crash cause the FDA approval date is coming Oct 28, 2010. I think it on it ways going down so let sell sell sell selll...............

  • Report this Comment On September 30, 2010, at 2:17 PM, ArnaAnalysis wrote:

    Arena sign new collaboration agreements with Ortho-McNeil-Janssen Pharmaceuticals, Inc. Stock will go up to $6. ARNA is a strong BUY BUY BUY.

    Please let me know if you have any questions.

    Thank you

  • Report this Comment On September 30, 2010, at 2:18 PM, ArnaAnalysis wrote:

    Breaking NEWS.

    Arna just got enough proof that FDA will approve ARNA drug. ARNA will go up 400%. BUY BUY BUY

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